Financing sustainable and green projects

The lending figures of green and sustainable banking in recent months show that the pro-environment banking practices have of late been experiencing difficult times. Bankers, however, would like to blame it on the severe liquidity crisis that has hit the banking sector amid high inflation and escalated bank interest rates. The data of the Bangladesh Bank (BB), on green and sustainable banking during the first quarter (January-March) of the current calendar year show that both banks and non-bank financial institutions (NBFIs) have demonstrated a declining trend in advancing green project loans. The BB report, for instance, shows that till the end of March 2024, banks invested Tk59.67 billion in green projects, which was less by 6.88 per cent compared with the record investment of Tk64.08 billion in the last quarter of 2023. The NBFIs, however, raised their green projects financing to Tk12.71 billion by the end of March this year compared with last year's Tk 9.96 billion.
Interestingly, fewer banks and NBFIs participated in green financing in the first quarter of this year compared to the last quarter of 2023. However, the loan amounts cannot be said to be inadequate. The banks' investment for green projects was 11.28 per cent of their total loan disbursement during the periods in question. The NBFIs, on the other hand, dedicated 29.7 per cent of their entire loan amounts disbursed in that period. When it comes to sustainable financing, which BB defines as investment, insurance, trading, accounting, economic or financial advice that integrates environmental, social and government criteria into business and investment decisions, the performance of the banking sector compared to last year's did decline by 2.83 per cent during the March quarter of this year. In fact, this diminishing trend of the banks' sustainable investment portfolio started since the end of 2022. Records show that the banks' total sustainable financing at that time was close to Tk400 billion. But the NBFIs' performance in this case was again positive. By this March, their total investment in sustainable projects was Tk33.59 billion--- 14.37 per cent higher than in the same period last year.
The overall decline in the banks' sustainable financing can be attributed to the liquidity crunch that prompts banks to become overly cautious about all kinds of lending. Even so, records are not quite despairing, especially in the case of the sustainable micro, small and medium enterprises (CMSMEs) where the investment amounted to Tk159.69 billion in the first quarter of current year. Sustainable agriculture was the second highest recipient of bank investment at Tk71.57 billion followed by 'socially responsible financing' amounting to Tk 57.77 billion. Of the green and sustainable investments, the banks' participation was 32.22 per cent while that of the NBFIs was 24.6 per cent. Notably, all the banks and NBFIs could not perform up to the mark, given that 20 per cent of their total loans disbursed had to be allocated for sustainable projects under BB instructions. But the 26 banks and 10 NBFIs which met the target definitely deserve appreciation.
The financial sectors' participation in financing green and sustainable projects should not be looked upon purely as one of the options. Given the ever-worsening climate change scenario, sustainable financing is an imperative. Banks, as principal source of project financing, can and should play a leading role in this regard.